Sales Journal Definition, Examples & Entries

This entry records the amount of money the customer owes the company as well as the revenue from the sale. A common problem pertaining to entries sales journal example in the sales journal is recording information incorrectly. At first glance, it would appear that Don purchased a good/service for $83.98.

• The sales revenue account is credited to show the income earned from the sale, which increases the company’s equity.
• The sales journal is used to record sales on account (meaning sales on credit or credit sale).
• And the accounts receivable subsidiary ledger for Baker Co. would also show the payment had been posted (Figure 7.22).
• Postings to the subsidiary ledger should be made daily to ensure that management has up-to-date knowledge about how much each customer owes.

The credit entry increases the Sales Revenue, indicating the earning of income. Note that we included GST in our sale, but now we have to separate it from the sale price. Also, we will have a debtors’ control account that lists ALL the credit we’ve given to customers. We have to include the full value of the sale here because that is what they owe us. Not only is it good to have a record of all transactions, but the government may also want to know what is happening with your business. One of the key records that needs to be maintained is a sales journal.

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Under the periodic inventory method, the credit would be to Purchase Returns and Allowances. In a credit sale journal entry, the Accounts Receivable account is debited to note the amount owed by customers, and the Sales Revenue account is credited to record the income earned from the sale. The sales revenue journal entry is fundamental to financial accounting as it impacts the income statement directly, showing the operational income generated from core business activities.

The Goods and Service Tax (also known as the GST) is a federal sales tax that is indirectly applied to the cost of services and goods. The GST is added to the product price — upon rendering payment, the customer is paying for the product and/or service plus the cost of GST. It does not only contain the price of the cost of goods sold, it also updates inventory. These two are basically the same columns but the name just changes depending on whether the client made a purchase on credit or by paying cash.

Bookkeeping

The cash receipts journal is used to record all receipts of cash for any reason. Anytime money comes into the company, the cash receipts journal should be used. Some businesses keep a different purchase and sale journal, while some journals keep the record of purchases and sales in the same journal. If ever some issue arises in the sale or delivery of the product to the client, the post reference entries help track the specific order and client. The six main parts of a sales journal are Data, account Debited, Invoice number, post Reference, Accounts Receivables, and cost of goods sold.

As entries are made to the sales journal, the transactions should be reflected within the GST, inventory, and cost of goods sold. It is important to highlight that the sales journal is used to record sales on credit transactions. When posted to the general ledger, the sales journal and general ledger should balance in relation to the total of accounts receivable in both the sales journal and the sales column within the general ledger. When the customer pays the amount owed, (generally using a check), bookkeepers use another shortcut to record its receipt. The cash receipts journal is used to record all receipts of cash (recorded by a debit to Cash). In the preceding example, if Baker Co. paid the $1,450 owed, there would be a debit to Cash for $1,450 and a credit to Accounts Receivable.

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In this way, each account receivable is shown at its full amount. You’ll record a total revenue credit of $50 to represent the full price of the shirt. However, the debit to the sales returns and allowances account ultimately subtracts $10 from your revenue, showing that you actually only earned $40 for the shirt. In recording a journal entry for sales, you’ll need to pass entry for sales—that is, move the information to all of the different accounts where it needs to be recorded. To create a journal entry in your general ledger or for a sale, take the following steps. At the end of the period, the TOTALS only would be recorded in posted directly into the accounts listed with no journal entry necessary.

The entry to record a sales return or allowance involves debiting the Sales Returns and Allowances account and crediting the Cash or Accounts Receivable account, effectively reducing the recorded sales revenue. Keep in mind that in your journal you will need to account for the Goods and Services Tax (GST), the tax added to almost all goods or services that are sold for domestic consumption. Note that if you charge GST to a customer, you will have to log that entry in the sales journal.

Posting from the Sales Journal

The sales journal has many uses, such as tracking and recording the cost of fixed assets, identifying errors in the general ledger, and narrating financial transactions while providing detailed descriptions. The sales journal is similar to the general ledger, which also provides a chronological order of transactions. The sales journal differs from the general ledger in that the sales journal provides specific information regarding accounts sold on credit. The sales journal is used to record Goods and Service Tax (GST), cost of sales, and total sales which are financial receivables. For example, if an item is sold for $200.00 and the GST is $20.00, the sales amount would be entered as $200.00, the amount charged would be $220.00, and $200.00 would be entered on the income statement.

In the next example of common errors, a purchase was made for $321.86 but was recorded in the sales column. Making an error by incorrectly recording the purchase of wholesale materials can impact the financial statement by misrepresenting the cost of purchasing equipment and/or materials. The misrepresentation of the cost of goods and services could also impact the profit and loss financial statements, and the general ledger. When recording entries into the sales journal, it is important to understand the difference between customer name and customer ID#.